What I’m Watching This Week – 10 November 2014

The Markets

In the wake of the midterm election results that gave Republicans control of both houses of Congress, domestic equities took a break from their recent volatility. Though the S&P 500’s increase was relatively modest, it still managed to regain the 2,000 level and go on to set three fresh record highs in the process. The Dow industrials not only set their own new record but also had the week’s biggest gain, while the Nasdaq and Russell 2000 ended the week basically flat. Declines in oil prices continued to make headlines as the price of West Texas Intermediate crude fell below $80 a barrel.

Market/Index 2013 Close Prior Week As of 11/7 Weekly Change YTD Change
DJIA 16576.66 17390.52 17573.93 1.05% 6.02%
Nasdaq 4176.59 4630.74 4632.53 .04% 10.92%
S&P 500 1848.36 2018.05 2031.89 .69% 9.93%
Russell 2000 1163.64 1173.51 1173.32 -.02% .83%
Global Dow 2484.10 2527.85 2516.73 -.44% 1.31%
Fed. Funds .25% .25% .25% 0% 0%
10-year Treasuries 3.04% 2.35% 2.32% -3 bps -72 bps

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Last Week’s Headlines

  • The U.S. unemployment rate edged down 0.1% to 5.8% in October, according to the Bureau of Labor Statistics. The economy added 214,000 jobs, most of them in restaurants, retail, and health care. The new jobs figure was slightly lower than the 222,000 monthly average so far this year. Meanwhile, October’s 3-cent increase brought the average hourly wage to $24.57; that average is up just under 2% over the last 12 months.
  • Saudi Arabia announced it would cut its price for oil sold to U.S. customers and raise prices for Asian customers. On top of increased Alaskan oil production during October, that caused the price of crude oil to drop to its lowest level in more than two years. The Organization of the Petroleum Exporting Countries said it expects demand for OPEC crude oil to fall nearly 2 million barrels a day to 28.2 million barrels a day by the end of 2017.
  • Lower than expected growth in Germany, France, and Italy led the European Commission to cut its growth forecast for next year. The commission said it now sees the eurozone’s 2014 GDP increasing by 0.8% rather than the 1.2% forecast last spring, while the 28-member EU as a whole is now expected to grow 1.3%. The forecast for 2015 is 1.1% growth for the eurozone and 1.5% for the EU. Eurozone inflation is seen stalling at 0.5% this year and 0.8% next year–far below the European Central Bank’s target 2%. Nevertheless, the European Central Bank left its key interest rate unchanged, though ECB President Mario Draghi once again said fresh stimulus measures will be adopted if necessary.
  • A sluggish global economy also affected the U.S. trade deficit, according to the Bureau of Economic Analysis. A 1.5% decline in exports to the rest of the world was a major reason for September’s nearly 7% increase in the trade gap.
  • S. manufacturing activity declined 0.6% in September, according to the Commerce Department. However, the Institute for Supply Management’s manufacturing index suggested a course reversal in October; the index rose 2.4%, and the 59% reading represented the 65th straight month of expansion.
  • S. construction spending was down 0.4% in September as private and public construction fell 0.1% and 1.3% respectively. The Commerce Department said it was the fourth straight monthly decline in private construction spending.

Eye on the Week Ahead

Data from the retail sector will dominate what little economic information is on tap next week. The Job Openings and Labor Turnover Survey report also may get extra attention for its implications for the employment picture.

Data sources: Economic: Based on data from U.S. Bureau of Labor Statistics (unemployment, inflation); U.S. Department of Commerce (GDP, corporate profits, retail sales, housing); S&P/Case-Shiller 20-City Composite Index (home prices); Institute for Supply Management (manufacturing/services). Performance: Based on data reported in WSJ Market Data Center (indexes); U.S. Treasury (Treasury yields); U.S. Energy Information Administration/Bloomberg.com Market Data (oil spot price, WTI Cushing, OK); www.goldprice.org (spot gold/silver); Oanda/FX Street (currency exchange rates). All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Past performance is no guarantee of future results.

The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2,000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. Market indices listed are unmanaged and are not available for direct investment.